Rising Newsprint Costs Could Snip Page Sizes and Profits, Papers Say
You probably haven’t noticed it, but your newspaper is shrinking.
The shrinking newspaper appears periodically across the country when rising newsprint prices force publishers to look for ways to cut costs. Trimming a few millimeters from the width of the page--as the Los Angeles Times has done--can be a substantial cost savings. It is also a cutback that doesn’t hurt service and one that readers usually won’t notice.
Some publishers are currently under pressure to take more drastic measures because the price of newsprint has risen twice since last summer. And the percentage increases have been significant. Other than the cost of labor, newsprint is a newspaper’s largest operating expense. Moreover, the latest price increase comes at a time when newspaper advertising sales are sluggish, depriving publishers of the revenue growth that would have blunted the impact of rising costs.
“With the combination of these two factors, there could be some disappointment in newspaper profits this quarter,” said John C. Goss, an analyst with Duff & Phelps. “Absolutely,” added John Russell, an analyst with Drexel Burnham Lambert. “All of the major newspaper companies are feeling a bit of a profit squeeze.”
Gannett President John J. Curley recently told analysts that the company’s flagship newspaper, USA Today, probably won’t make a profit in 1988--after reporting its first profitable quarter at the end of 1987--in part because of higher newsprint prices. Newsprint expenses also increased because of the opening of new plants to print more copies of the national newspaper, said Bill Maxfield, president of Gannett Supply Corp.
New York Times Co., which publishes the New York daily and 35 regional newspapers, earlier this month reported an 11% profit increase for the first quarter. But the increase to $45.5 million from $41.1 million was due entirely to the performance of the company’s broadcasting and forest products divisions.
New York Times Co. has a minority interest in three Canadian paper mills that supply most of its newsprint. The newspaper group’s earning’s declined slightly because of high paper prices, said spokesman William Adler. At the same time, the forest products group’s rosy results were due to high paper prices.
Invest in Mills
Several major newspaper publishers have interest in paper mills, but earnings from those investments don’t always offset the cost of buying newsprint, said Frank Hawkins, vice president of Knight-Ridder Inc., the Miami-based publisher of big city dailies and several small- to medium-sized newspapers. The company is also a partner in a Georgia mill.
“We buy on the open market and sell most (of the Georgia production) to others,” Hawkins said. Most publishers, including Times Mirror Co.--publisher of the Los Angeles Times and a number of other papers--invest in paper mills to guarantee supplies, analysts said.
Even when newsprint earnings do offset newsprint expenses, as in the case of the New York Times, “investors tend to (assign) a higher value to newspaper publishing than the newsprint operations,” Drexel’s Russell said. If high expenses are cutting into the newspaper publishing profits, “it tends to mark down the value of the shares,” he added.
Million-Dollar Savings
Far from the corporate suites where executives worry about such matters, Abe R. Sanchez has his own concerns in his Barstow office. He is general manager of the 8,100-circulation Desert Dispatch, a Thomson Newspapers publication.
Newsprint costs have risen about 12% in the last eight months, he said. The increase comes just as the newspaper has been increasing the space devoted to news, he said. For the time being, it is absorbing the extra newsprint cost, he said, but “we will probably raise (advertising) rates. We can reduce the size of the paper (width of each page) or use a lighter weight newsprint,” he added.
The Los Angeles Times, which uses more newsprint than any other U.S. newspaper, trimmed 1/32 inch from the white space at the edge of each page in June, 1986, and may be forced to cut another 1/32 inch, said James B. Shaffer, vice president for finance and planning. Those cuts will translate into an annual cost savings of about $1.18 million, he said.
Times Mirror reported this week that although earnings were up 29% in the quarter, results of its newspaper group were down due to sluggish advertising and circulation growth as well as higher newsprint costs.
cutting expenses
The Times will use about 470,000 tons of newsprint in 1988 for the daily paper and another 12,000 tons of coated paper to print the Los Angeles Times magazine.
Newsprint cost, totaling about $260 million a year, is about a third of the paper’s total costs, Shaffer said.
Including expenses budgeted for this year, the Times’ newsprint cost per ton will have increased 41% since 1980. That includes 12.6% since last July. “We can’t expect our customers to absorb this much of an increase in one year,” Shaffer said.
The paper is cutting expenses in every department, Shaffer said. It has slowed hiring, cut travel significantly and made modest cuts in promotion and training expenses, he added.
Other companies report newsprint expenses that are a smaller percentage of costs. Dow Jones & Co., publisher of the Wall Street Journal, had newsprint expenses of about 10% of revenue in 1987, a spokesman said. Revenue totaled about $1.3 billion. Knight-Ridder’s newsprint expenses are about 22% of total operating costs, Hawkins said. “It is not an insignificant figure,” he said. In light of price hikes, he said, “we’re holding costs real tight.”
Newsprint prices have been volatile since the end of World War II because of periodic ill-matched demand and supply. “To build a mill takes billions in capital and years of planning,” Shaffer said. With the long lead time, there have been cyclical patterns of abundant supply and low demand followed by low supplies and high demand since the war. Prices declined during the 1982 recession but have been rising since the spring of 1984.
ESTIMATED COST OF NEWSPRINT AT THE LOS ANGELES TIMES
Price per ton July, 1983 $403.75 March, 1984 431.00 October, 1984 461.00 October, 1985 438.10 October, 1986 466.60 July, 1987 501.50 January, 1988 543.00 October, 1988* 565.00
* Projection
